Monday, January 11, 2010

Do we need an IT Budget ?

There is a general agreement that 70-80% of the IT budget (this figure varies depending on the reported overall IT operational spends) gets committed on the first day of the year. Whatever remains is typically spent on new initiatives and projects. While the reality may vary from company to company, the same question has been posed time and again in such a scenario.
So do CIOs need to prepare elaborate IT budgets?

In this context, one of the CIOs I was talking to mentioned that he has stopped preparing IT budgets altogether! Instead, he transfers all spends to the business, as they decide the business requirements — whether it’s operational or project driven. He asks them to justify why any project needs to be undertaken, and what should be the ROI. An interesting perspective, I must say.

Such maturity can be reached only in two situations. First is if the organization has evolved to a level where CXOs are in sync with reality and work in tandem towards achieving their objectives. The other situation entails that CXOs are totally disconnected, and have no faith in the CIO’s ability to manage his budgets.My survey of Indian enterprises (by talking to CIOs) reveals that operational IT expenses are typically lower than consultant projections — by about 10-15%. This is a reflection of our lower wage bills, and the ability of Indian CIOs to stretch their IT budgets a bit longer than their peers in other geographical regions.Does the learning from global CIOs stretching their budgets apply to Indian CIOs? To some extent, yes! But the big differentiator that most global enterprises depend upon to shrink costs has limited relevance in India — outsourcing to offshore vendors.

If the CIO splits his budget into two parts — operational IT (business as usual) and business IT (new or incremental projects creating value) — the management of IT budgets becomes easier. CIOs still have to run an efficient shop. Also, accountability still rests with the IT organization, when it comes to managing the overall infrastructure, applications and relationships that create an ecosystem to support business operations. Improvements driven by new technology trends and innovation are essential, and this is what IT organizations have to excel in — even if it is outsourced. The placeholder for such spend is not relevant, whether it is integrated with the business budget or a separate IT budget, as the cost is finally allocated across business units.

Business IT or strategic IT is a larger discussion. The CIO’s maturity and relationship with CXOs is the key to success. Working in step with his/her peer group, a CIO can influence the outcome, which is whether the budget is approved or not. My belief is that an individual CIO who aspires for lateral growth should understand how to manage within a budget. At the same time, he must understand the impact he creates on business operations, customers and stakeholders. For this alone, the IT budget’s ownership has to rest with the CIO.


  1. True, CIO's need to control IT Budget due to multiple reasons however What should be the Business IT Budget for a organization itself is a big questions. Indian CIO's have taken multiple steps or thought process to achieve the same. Some have taken the metric of Cost per person with hope that the predictibality of the cost and cost of operation are same. Some go to the extent of taking existing cost of Systems, Security, Network, Application and Database and ADD Two or Three projects max what they can handle as the Budget. (Capacity handling + Business as usual). Some go through the pain of understanding too much micro management and optimizing one of two area close to heart with the CIO. A lot of CIO's want the budget to be business driven and depending on vertical knowledge or business approach or understanding the budget needs to be created. The challenge in such cases is justification to business where budget planning can never be completed in few cycles. Hence it is only the experienced or seasoned CIO's who manage to get the right budget required. India has a huge shortage of such CIO's.

  2. I think tactical IT budgets - "run the business" systems - and strategic IT budgets - "enhance the business" systems and projects - belong in a central IT budget. However, you need to charge these costs back to the revenue they support - yet, I'm not a huge fan of chargeback systems per se.
    Some thoughts here ( and here (